Post Office heading for business rescue

The Post Office is heading for business rescue after the minister of communications last week brought an urgent application to follow this path to avert the liquidation of the state-owned entity.

The embattled entity was placed under provisional liquidation in April, after a successful application from one of its creditors.

The application will be heard on 4 July, while the application to liquidate the Post Office was postponed to 30 October.

SA Express is the only state-owned entity that has been liquidated so far but looking at the update presentation of National Treasury to the standing committee on appropriations last week, other state-owned entities are not far from being in the same boat.

According to Werksmans Attorneys, business rescue is used to facilitate the rehabilitation of a financially distressed company by providing for a business rescue practitioner to temporarily supervise the company and the management of its affairs, business and property.

When a company is in business rescue, it is temporarily protected from claims from credits.

The business rescue practitioner develops a business rescue plan is developed to rescue the company by restructuring its business, property, debt, affairs, other liabilities and equity in such a way that it increases the likelihood of the company continuing on a solvent basis or results in a better return for the creditors than would have been the case in a liquidation.

ALSO READ: Post Office provisionally liquidated again

Post Office revenue 46% under budget

According to National Treasury, the Post Office’s revenue for the past financial year was R2.6 billion, 46% under budget due to a failure to implement revenue initiatives, increased customer migration to digital alternatives and its weak financial position that affected its ability to pay suppliers.

The Post Office’s expenses were R5.1 billion, 24% under budget but due to its high fixed cost structure, expenses continued to exceed revenue.

The entities’ wage bill of R3.6 billion made up 70% of the total cost and it forecast a net loss for the year of R2.1 billion.

The Post Office owes its creditors R5 billion and its statutory obligations amount to R2.4 billion that includes R1.1 billion due to Post Office Retirement Fund, R539 million to Sars, R596 million to Medipos and R108 million to UIF.

No government guarantees are currently in place for the Post Office. It received a R2.4 billion bailout from government this year, before the receiving provisional liquidation order.

National Treasury said its financial position continues to be severely constrained, resulting in it being commercially insolvent and illiquid.

The Post Office has been in financial decline for a decade as it is struggling to address its structural challenges in a modern economy and National Treasury also points at the failures of the current and previous board to successfully implement turn around strategies.

A number of reforms have been implemented and the Post Office’s mandate was strengthened to provide the basis for its turnaround, but National Treasury says it continues to struggle with its commercial revenues.

The Post Office has finalised its new strategy, called The Post Office of Tomorrow, which aims to turn the business around regarding the technological changes that had forced it to lag.

National Treasury says the Post Office started to implement the new strategy but remains challenged due to the lack of funding on key projects which underpins the strategy.

ALSO READ: Government working to save SA Post Office – Gungubele

Financial woes of other state-owned entities

According to the presentation, the Land Bank is not doing much better, as it has been in default since 1 April 2020.

However, it has since made capital reductions to reduce its debt and R18.1 billion was repaid through capital repayments.

At the end of March 2023, the Land Bank recorded a net profit of R695.7 million against a budgeted loss of R184 million for the year and the prior year’s profit of R1.4 billion.

There was also no good news about embattled arms manufacturer Denel that has submitted audited annual reports due to historical challenges, although it submitted regular quarterly reports.

To date, it funds from the Denel Medical Benefit Trust disposal transaction amounting to R992 million as part of its turnaround plan.

Thanks to this transaction and the receipt of a portion of the appropriation, Denel’s equity was reported at R2.2 billion and its liquidity stood at R3.7 billion at the end of March 2023, which National Treasury say is a significant improvement from the historically negative equity being reported.

South African Airways was no longer technically insolvent and according to National Treasury its net equity value at the end of March was R670 million.

The SAA group ended March with an unaudited year-to-date profit of R500 million against a budgeted loss of R740 million.

Transnet, another problem child of government, battled with ongoing security incidents, locomotive unavailability and the poor state of the rail infrastructure.

National Treasury says inefficiencies of Transnet’s freight rail network posed a significant risk to the South African economy and required urgent intervention.

Eskom also reported a loss before tax of R21.2 billion for the financial year against a budgeted loss of R13.6 billion and a March 2022 loss before tax of R11.9 billion.

National Treasury says Eskom generation continued to experience unreliable performance of its power generating plants, mainly due to delayed and inadequate maintenance, delays in the commissioning of new plants and faults detected in the new units.

It remains to be seen which of the state-owned entities will be next and whether the Post Office will indeed be rescued by business rescue.